CESTAT quashed 2.47% CVD on continuous cast copper wire

Metrod (Malaysia) Sdn Bhd Vs Designated Authority Directorate General of Antidumping & Allied Duties (CESTAT Delhi)

Conclusion: Since it was not possible to sustain the CVD levied for ‘other program’ and if the other program was excluded from the subsidy margin determination, assessee would fall below the de minimis level. The imposition of 2.47% CVD on assessee at serial no. 8 of the notification dated January 8, 2020 was, therefore, liable to be set aside.

Held: Assessee was a manufacturer of copper rods, wire rods, drawn copper wires and strips. Metrod Copper Products Sdn Bhd and Metrod(OFHC) Sdn Bhd were wholly owned subsidiaries of assessee and were inter alia engaged in marketing and selling copper wires manufactured by assessee. Savli Copper Products Pvt Ltd. was an Indian related party of assessee and had imported copper wires manufactured by assessee into India. The notification dated January 08, 2020 that was issued by the Government of India on the recommendation of the Designated Authority imposing countervailing duty of 2.47% on Continuous Cast Copper Wire produced by Metrod Malaysia Sdn Bhd² originating in Malaysia and exported from any country, including Malaysia, to India. Assessee challenged on two grounds – the first was that if the “other program” was excluded from the subsidy margin determination, assessee would fall below the de minimis level and, therefore, would be excluded from the purview of the impugned notification and the second was “Copper Wire” manufactured by assessee was not akin to “Continuous Cast Copper Wire Rods”, for which Hindalco was a majority producer (Domestic Industry) and in respect of which complaint was filed and an investigation was initiated. As such, no CVD could have been imposed on drawn Copper Wire manufactured by assessee i.e. Copper Wire of less than 6mm manufactured by using the drawing process and falling under CTH 74081990. In the instant case, it was seen that the Designated Authority, at no point of time prior to final findings, suggested or alleged that the Government of Malaysia failed to provide the requisite information. The records indicated that the Government of Malaysia had filed the Questionnaire Response and if there was any doubt, the Designated Authority could have required the Government of Malaysia to provide the information. Thus, it was not possible to sustain the CVD levied for “other program” and if this program was excluded from the subsidy margin determination, assessee would fall below the de minimis level. The imposition of 2.47% CVD on assessee at serial no. 8 of the notification dated January 8, 2020 was, therefore, liable to be set aside. Such being the position, it would not be necessary to examine the submission raised on behalf of the assessee that the drawn “Copper Wire” manufactured by assessee was not akin to “Continuous Cast Copper Wire Rods”. In the result, the imposition of 2.47% CVD on assessee at serial no. 8 of the notification dated January 8, 2020 was set aside.

FULL TEXT OF THE CESTAT JUDGEMENT

1. The notification dated January 08, 2020 that was issued by the Government of India on the recommendation of the Designated Authority imposing countervailing duty¹ of 2.47% on Continuous Cast Copper Wire produced by Metrod Malaysia Sdn Bhd² originating in Malaysia and exported from any country, including Malaysia, to India has led to the filing of these four appeals.

2. The appellant is a manufacturer of copper rods, wire rods, drawn copper wires and strips. Metrod Copper Products Sdn Bhd and Metrod(OFHC) Sdn Bhd are wholly owned subsidiaries of the appellant and are inter alia engaged in marketing and selling copper wires manufactured by the appellant. Savli Copper Products Pvt Ltd. is an Indian related party of the appellant and has imported copper wires manufactured by the appellant into India.

3. The impugned notification also imposes CVD on similar goods manufactured/exported from Indonesia, Vietnam, Thailand and other manufactures in Malaysia, but no appeal has been filed by any other manufacturer/exporter/importer of the subject goods.

4. M/s Hindalco Industries Limited³ (respondent no. 3) and M/s Vedanta Industries (Sterlite Copper)⁴ (respondent no. 4) had filed an application, as a Domestic Industry, under the provisions of the Customs Tariff Act, 1975⁵ and The Customs Tariff (Identification, Assessment and Collection of Countervailing Duty on Subsidized Articles and for Determination of Injury) Rules, 1995⁶ before the Designated Authority for imposition of CVD on imports of Continuous Cast Copper Wire Rods from Indonesia, Malaysia, Thailand and Vietnam. It needs to the noted that where any country bestows any subsidy upon the manufacture or production of any article, then, upon the importation of such article into India, the Central Government may impose a CVD not exceeding the amount of such subsidy.

5. The Designated Authority, by a notification dated September 10, 2018, initiated investigation to determine the existence, degree and effect of the alleged subsidy and to recommend the amount of countervailing duty, which if levied, would be adequate to remove the alleged injury to the Domestic Industry. The product under consideration in the investigation was described Continuous Cast Copper Wire Rods classifiable under customs sub-headings 7407. 1010, 7407.1020, 7408.1990, 7408.1920, 7408.1990, 7409.11 and 7409.19. The period of investigation was notified to be from April, 2017 to March, 2018.

6. The Designated Authority provided an opportunity to all the interested parties to present their views orally in the hearing held on March 29, 2019 and the parties who attended the oral hearing were advised to file their written submission on the views expressed by them orally at the hearing.

7. The disclosure statement was issued to the interested parties on October 21, 2019. It consisted of four Annexures namely, Annexure I: General Disclosure; Annexure II: Assessment of Subsidy- Methodology, Parameters, Countervailability and Subsidy Margins; Annexure III: Assessment of Injury and Causal Link; and Annexure IV: Methodology for arriving at non-injurious price. It was stated that the aforesaid Annexures contained the essential facts under consideration of the Designated Authority, which would form the basis for the Final Findings. The interested parties were asked to offer their comments by October 29, 2019. The gist of the disclosure statement is as follows :

(i) The product under consideration is Continuous Cast Copper Wire Rods falling under Tariff Heading 7408. The product includes Copper Wire of which the maximum cross-sectional dimension exceeds 6mm as well as 6mm and below. The Customs classification is indicative only and in no way binding upon the product scope. Continuous Cast Copper Wire Rods produced by the Domestic Industry is a like article to the Continuous Cast Copper Wire Rods imported from the subject countries;

(ii) A Product Control Number⁷ methodology would be adopted;

(iii) Vedanta imported the subject goods during the period of investigation. It is, therefore, ineligible to be a part of the Domestic Industry. Vedanta has also not submitted the requisite information to the Designated Authority for considering it to be a part of the Domestic Industry. However, Hindalco constitutes Domestic Industry; and

(iv) Subsidy program no. 24 in relation to Malaysia provides for import duty exemption to qualified manufacturer on raw material that is not locally available. Further, the program provides financial contribution in the form of revenue foregone, which is otherwise due and benefit is thereby conferred. The program is also specific because it is limited to enterprises that use raw material that are not locally available.

8. The comments were submitted by the parties to the disclosure statement and ultimately the final findings were notified by the Designated Authority on January 8, 2020. The gist of the final findings are as follows:

(i) The finding in regard to the Vedanta not being a Domestic Industry remains the same. Hindalco would constitute the Domestic Industry;

(ii) However, the scope of the product under consideration is narrowed down to Continuous Cast Copper Wire falling under Tariff Heading 7408. The product would include Copper Wire of which maximum cross-sectional dimension exceeds 6mm as well as 6mm and below;

(iii) It had inadvertently been noted in the disclosure statement that subsidy benefit had been availed by the appellant under program No. 24, though the benefit had been obtained under “other program” that provided financial contribution in the form of revenue foregone, which is otherwise due through exemption from import duty on raw materials and thereby conferring a benefit to the appellant;

(iv) The import of raw material for use in the production of exported goods cannot be considered as countervailable subsidy if there is sufficient evidence to demonstrate that there is a verification mechanism to ensure that there is no excess remission;

(v) The appellant had merely claimed existence of a mechanism and absence of excess remission, without providing sufficient evidence or step-by-step explanation of such verification mechanism;

(vi) Name of the subsidy program and the corresponding subsidy margin is indicated in a table, which is reproduced below :

Program No.	Name of the grant program	Brief Description/ Comment	Subsidy margin %	Subsidy margin Range %
Program No. 12	Accelerated Capital Allowance	Accelerated deduction of capital expenditure from taxable income.	***	0-1%
Program No. 23	Exemption from Import Duty and Sales Tax on Machinery and Equipment	The program involves import duty exemption on machinery and equipment to qualified manufacturer.	***	0-1%
Program No. 35	International Procurement Centre (IPC status)	Full Income Tax exemption on statutory income.	***	0-1%
Other program	Exemption from Import Duty on Raw Materials/Components	The program involves exemption of import duties on the imported raw materials which are used in the production of export goods.	***	0-5%
Total			***	0-5%

9. The Designated Authority, accordingly, came to the following conclusions:

(i) the subject goods have been exported to India from the subject countries at subsidized price, except from M/s SEI Thai Electric Conductor Co. Ltd., Thailand;

(ii) the domestic industry has suffered material injury due to subsidization of the subject goods;

(iii) material injury has been caused by the subsidized imports of the subject goods originating in or exported from the subject countries; and

(iv) Thus, definitive CVD should be imposed which would be equal to the lesser of margin of subsidy and margin of injury for a period of five years from the date of notification to be issued by the Central Government so as to remove the injury to the domestic industry.

10. The Government of India, by a notification dated January 8, 2020, after considering the final findings of the Designated Authority, imposed CVD, as indicated in the table below:

Sl. No.	Heading	Description of Goods	Country of Origin	Country of Export	Producer	Duty amount as % of landed value
(1)	(2)	(3)	(4)	(5)	(6)	(7)
1.	7408	Continuous Cast Copper Wire	Thailand	Any Country including Thailand	SEI Thai Electric Conductor Co. Ltd	NIL
2.	-do-	-do-	Thailand	Any Country including Thailand	Any producer other than producer mentioned in S. No. 1	3.46%
3.	-do-	-do-	Any country other than Thailand, Indonesia, Malaysia and Vietnam	Thailand	Any	3.46%
4.	-do-	-do-	Indonesia	Any country including Indonesia	PT. Tembaga Mulia Semanan. Tbk	3.75%
5.	-do-	-do-	Indonesia	Any country including Indonesia	PT. Karya Sumiden Indonesia	4.98%
6.	-do-	-do-	Indonesia	Any country including Indonesia	Any producer other than producer mentioned in S. Nos. 4 and 5	7.94%
7.	-do-	-do-	Any country other than Thailand, Indonesia, Malaysia and Vietnam	Indonesia	Any	7.94%
0.	-do-	-do-	Malaysia	Any country including Malaysia	Metrod Malaysia Sdn Bhd	2.47%
8.	-do-	-do-	Malaysia	Any country including Malaysia	Any producer other than mentioned in S. No. 8	10.27%
9.	-do-	-do-	Any country other than Thailand, Indonesia, Malaysia and Vietnam	Malaysia	Any	10.27%
10.	-do-	-do-	Vietnam	Any country including Vietnam	Any	7.13%
11.	-do-	-do-	Any country other than Thailand, Indonesia, Malaysia and Vietnam	Vietnam	Any	7.13%

11. It is the imposition of 2.47% CVD at serial no.8 of the aforesaid table on Continuous Cast Copper Wire produced by the appellant and originating in Malaysia and exported from any country, including Malaysia, to India that has been assailed in the four appeals.

CONTENTIONS OF THE APPELLANTS

12. Shri Vipin Kumar Jain, learned counsel assisted by Shri Vishal Agarwal and Ms. Tuhina Sharma submitted that the challenge to the imposition of 2.47% CVD is mainly on two counts:

A. Subsidy was incorrectly computed for “other program”, which was not countervailable as it granted exemption only in respect of import of that quantity of raw material which was required for export production. If this program is excluded from the subsidy margin determination, the appellant would fall below the de minimis level and, therefore, would be excluded from the purview of the impugned notification; and

B. Drawn “Copper Wire” manufactured by the appellant is not akin to “Continuous Cast Copper Wire Rods”, for which Hindalco is a majority producer (Domestic Industry) and in respect of which complaint was filed and investigation was initiated. As such, no CVD could have been imposed on drawn Copper Wire manufactured by the appellant i.e. Copper Wire of less than 6mm manufactured by using drawing process and falling under CTH 74081990.

13. Learned Counsel for the appellant submitted that rule 16 of the 1995 Rules provides for immediate termination of the investigation if the subsidy margin for a particular exporter is less than de minimis level and so if the appellant succeeds in his challenge under issue (A), the other factual aspect as to whether the drawn Copper Wire comes within the purview of “product under consideration” and whether Hindalco qualifies as a domestic industry for drawn Copper Wire would be only academic in nature and may not be necessary to be decided.

14. In connection with the challenge under issue (A), learned counsel for the appellant made the following submissions:

(i) The appellant did not avail any inadmissible subsidy under the said “other program” as the appellant was granted exemption from payment of customs duty on the import of inputs required for manufacturing goods for export. The World Trade Organisation Agreement on Subsidies and Countervailing Measures⁸ as well as the 1995 Rules provide that exemption of import charges (which include customs duty payable at the time of import) on inputs for manufacturing goods for export are permissible duty remission and, therefore, not countervailable. In this regard, reference has been made to section 9(B) of the Tariff Act read with Annexure III, Part 1 clause (i) of the 1995 Rules as also Footnote 1 to Article 1 read with Annexures I, II and III of the SCM Agreement;

(ii) Thus, only the remission or drawback of import charges in excess of those that are levied on imported inputs consumed in the production of the export goods, after making allowance for wastage, alone can be considered as a countervailable subsidy. This position clearly emerges from Annexure III, Part 1 to the 1995 Rules, which in clauses (g), (h) and (i) lays down this principle. The aforesaid clauses (g), (h) and (i) of Annexure III, Part 1 to the 1995 Rules also form a part of Annexure I to the SCM Agreement;

(iii) Under the “other program”, the appellant was granted exemption of import duties on the imported raw material (i.e. Copper Rod) which are used in the production of export goods (i.e. Copper Wire). The exemption was granted subject to the condition that imported inputs are directly used in manufacturing product for exports. Thus, in terms of the approval letter, the appellant was granted full import duty exemption on import of Copper Rods to be used in producing Copper Wire for the export market;

(iv) Further, it was prescribed in the approval letter that 1MT: 1MT input–output ratio has to be maintained, i.e. for every 1 MT of Copper Rod imported duty free, 1MT of Copper Wire is required to be exported. Thus, there was no scope for excess remission under the “other program” availed of by the appellant, as it was permitted to import only 1 MT of input (Copper Rod) for the manufacture and export of 1MT of drawn Copper Wire;

(v) Neither could drawn Copper Wire be manufactured from an input other than Copper Rod nor could 1MT of drawn Copper Wire be manufactured using less than 1MT of input i.e. Copper Rod;

(vi) If the subsidy margin on account of “other program” is excluded from the computation of subsidy margin in paragraph 317 of the Final Findings, the subsidy margin would fall to below 1%, which is the de-minimis level prescribed in cases of developed countries, while the de-minimis level for developing countries like Malaysia is 2%.;

(vii) The Designated Authority has considered the entire import duty exemption on raw material received by the appellant as a subsidy. Even if the Designated Authority was of the view that the Government of Malaysia has granted inadmissible subsidy to the appellant by way of excess remission of import duty, the Designated Authority was required to compute such “excess” amount and the entire exemption received by the appellant could not have been countervailed. In this regard, reliance has been placed on the finding of WTO Appellate Body decision in European Union – Polyethylene Terephalate from Pakistan;

(viii) The only reason assigned in the impugned order for rejecting the claim of the appellant regarding there being no excess remission is that the appellant failed to demonstrate step by step mechanism to verify excess remission. Apart from the fact that the appellant was at no stage put to notice to demonstrate step by step mechanism to verify whether there was an excess remission, there was no scope for any excess remission and consequently no adverse inference could have been drawn against the Appellant on this count;

(ix) Even if the Designated Authority was to take a view that there was no adequate system or procedure in place, then too as per paragraph II of Part 2 of Annexure III, it was obligatory on the part of the Designated Authority to request the Government of Malaysia to conduct a further examination, as stipulated in paragraph 1(2) of Part 2 of Annexure III, based on the actual inputs involved for determining whether an excess payment occurred;

(x) Though the Government of Malaysia was not called to conduct such examination, but still even a refusal by the exporting country to conduct such “further examination” does not give the Designated Authority a right to consider the entire exemption availed by the exporter to be a subsidy, and to deviate from the principle of “excess remission”. Rule 7(8) of the 1995 Rules clearly provides that where requisite information is not provided by the interested parties, the Designated Authority is required to record its findings based on facts available to it. Reliance has been placed on the decision of the WTO Appellate Body in European Union- Polythylene Terephalate from Pakistan;

(xi) Neither in the Verification Report nor in the Disclosure Statement or confidential subsidy computation statements issued thereafter, the Designated Authority mentioned or examined any “other program” or even made a suggestion that the appellant failed to provide any document/information regarding any program or that the appellant received any excess remission of import duty on its duty free imports of Copper Rods. It is only in the final findings that for the first time the Designated Authority re­classified the import duty exemption availed by the Appellant as “other program”, claiming earlier classification as “program 24” as an inadvertent error. The determination of subsidy margin for “other program” in the final findings, without disclosing the essential facts based on which the said program was held to be countervailable and subsidy margin computed thereunder, is in gross violation of rule 18 of the 1995 Rules;

(xii) In any event, the Designated Authority as also the Union of India have gone beyond the scope of law while recommending or imposing 1995 Rules on Copper Wire, when the investigation was initiated only in respect of Copper Rods;

(xiii) There is no product known in trade or commerce as “Continuous Cast Copper Wire”. The Designated Authority has also failed to take note of the various differences between Copper Rods and Copper Wire, which were highlighted by the appellant; and

(xiv) Hindalco has a very minimal Copper Wire drawing facility. As such, it cannot be considered as a Domestic Industry for drawn Copper Wire of CTH 74081990, i.e. Copper Wire of thickness less than 6mm.

CONTENTIONS OF THE DESIGNATED AUTHORITY
(RESPONDENT NO.1)

15. Shri Ameet Singh learned counsel appearing for the Designated Authority made the following submissions:

(i) The Designated Authority mentioned ^„other program‟ as program 24 inadvertently while issuing the disclosure statement, which fact was also clarified in the Final Findings.

No prejudice has been caused to the appellant as it had adequate opportunity to meet the said subsidy program and detailed and extensive views were submitted in their comments to the disclosure statement;

(ii) The appellant did not provide adequate evidence before the Designated Authority to substantiate that inputs were used exclusively for manufacturing goods for exports on which duty remission/ exemption was availed by the appellant and that an adequate verification mechanism existed and was being implemented by the Government of Malaysia;

(iii) Even otherwise, there is no prescription in the 1995 Rules that the Designated Authority cannot examine the existence of subsidy schemes that have not been specifically alleged to exist by the Domestic Industry;

(iv) The scope of product under consideration was neither enlarged nor modified in the Final Findings. Product Control Number wise information was sought as per the request of the interested parties and it did not result in enlargement of the scope of the product under consideration. Therefore, the factum that other tariff headings were mentioned in the initiation notice, whereas the product scope was described with greater precision and clarity in the Final Findings, cannot be said to have resulted in modification or enlargement of the scope of the product. The Domestic Industry produces Copper Wire that is both below 6mm as well as above and, therefore, is a like article to the imported product under consideration; and

(v) The appellant is not justified in contending that Hindalco cannot represent the Domestic Industry for “Copper Wire”, which is a separate industry.

CONTENTIONS BY HINDALCO (RESPONDENT NO.3)

16. Shri S. Seetharaman learned counsel appearing for Hindalco assisted by Shri Atul Sharma, Shri T.D Satish and Shri Darpan Bhuyan made the following submissions:

(i) The appellant failed to respond to the questions put to them with regard to verification mechanism;

(ii) The response to the Government Questionnaire filed by Government of Malaysia also does not provide any answer to several specific questions. The Government of Malaysia only made a self-declaration that the program complies with the requirements of relevant Annexures of the SCM Agreement, without answering the questions posed to them;

(iii) The contention of the appellant that the Designated Authority verified all the information during the verification visit is a bald statement without any supporting evidence;

(iv) The appellant only provided documents relating to grant of exemption and no document was provided in connection with the verification mechanism employed by Government of Malaysia to ensure that there is no excess remission. No evidence was filed before the Designated Authority during the investigation to substantiate the fact that the inputs were used exclusively for manufacturing goods for exports on which duty remission/ exemption was availed by the appellant. The onus was on the Government of Malaysia, but the Malaysian Government did not bother to respond to the question posed to them;

(v) The exemption letter provided by the Malaysian Authorities does not ipso facto establish that a proper verification mechanism existed. There was nothing on record to suggest that the conditions imposed in the said letter were actually enforced;

(vi) The allegation of excess remission was made by the Domestic Industry specifically under program 24. There is no prescription in the 1995 Rules that the Designated Authority cannot examine the existence of subsidy schemes that have not been specifically alleged to exist by the Domestic Industry;

(vii) The WTO decision quoted by the appellant may only have a persuasive value before this Tribunal and the Tribunal ought not to be persuaded by the said WTO decision;

(viii) Reliance should be placed on cases where investigation authorities from other WTO member countries have countervailed the entire amount of duty remission on inputs in the absence of a proper and reliable verification mechanism;

(ix) The appellant failed to provide the information sought by the Designated Authority and, therefore, the Designated Authority was correct in arriving at a decision based on ^„facts available‟;

(x) The scope of the product under investigation was examined and decided by the Designated Authority through a transparent process during the investigation by providing adequate opportunity to all interested parties. After considering the views of the interested parties, the Designated Authority arrived at the product description in the final findings and there has been no violation of the principles of natural justice; and

(xi) The Designated Authority has only reworded the text from “continuous cast copper wire rods‟ to ^„continuous cast copper wires‟ covered under tariff heading 7408 of the customs tariff.

CONTENTIONS ON BEHALF OF VEDANTA (RESPONDENT NO.4)

17. Ms. Reena Khair, learned counsel appearing for Vedanta assisted by Shri Rajesh made the following submissions:

(i) The description of the product should be sufficient to identify the article liable to duty, for customs purposes. The words ^„continuous cast copper wires‟ are descriptive of the article under investigation. It denotes that the product is made of copper and is in wire form. The term ^„continuous cast‟ has been used to describe one of several processes, in the production of copper wire. The findings as also the notification mention only the description and not the name. It is not the case of the appellant, either in the appeal or in the oral arguments, or during the course of investigations that its exports to India do not fall within the scope of the description mentioned in the final findings or the customs notification;

(ii) The scope of product under consideration as defined in the notice of initiation, has not been enlarged in the final findings;

(iii) The applicant has standing as ^„domestic industry‟ under rule 6 read with rule 2(b) of the 1995 Rules;

(iv) The investigations have not been conducted in violation of the principles of natural justice and no prejudice has been caused to the appellant. The grievance of the appellant that the Designated Authority failed to conduct verification or issue disclosure statement qua the “other program” and hence there is violation of rule 17 of the 1995 Rules is without justification as it participated in the investigations without demur. At no stage of the investigation, either the Government of Malaysia or the appellant claimed that they have not availed program 24 and that the entire investigation, that is the initiation, verification or disclosure are inapplicable to them. On the contrary, they have submitted to the jurisdiction of the Authority and have furnished information for the program availed by them under program 24;

(v) The scheme availed by the exporter is countervailable and subsidy was required to be restricted to the extent of excess remission;

(vi) The Appellant Body Report in European Union-Countervailing Measures on Certain Polyethylene Terephthalate from Pakistan has no relevance to the present dispute; and

(vii) There is no bar to the quantification of the subsidy amount as the benefit foregone by the Government of the exporting Country. In this regard reliance has been placed on certain decisions of the investigating authorities in other jurisdictions, like USA, Brazil, and Canada.

18. The submissions advanced on behalf of the parties have been considered.

19. The challenge to the imposition of 2.47% CVD is on two grounds. The first is that if the “other program” is excluded from the subsidy margin determination, the appellant would fall below the de minimis level and, therefore, would be excluded from the purview of the impugned notification. The second is that “Copper Wire” manufactured by the appellant is not akin to “Continuous Cast Copper Wire Rods” and, therefore, no CVD could have been imposed on drawn “Copper Wire” manufactured by the appellant. Learned counsel for the appellant also stated that in case the first contention is accepted, it may not be necessary to decide the second contention.

20. In this view of the matter the first contention is being examined and only if it is not accepted, it would become necessary to examine the second contention.

21. The Designated Authority, in the final findings, determined that the appellant had received benefits under program 12, 23, 35 and “other program”. The challenge in this appeal is restricted to the “other program”, on which subsidy margin of 0-5% has been computed against the appellant, as is clear from the table contained in paragraph 8 (vi) of this order. The main contention of the learned counsel of the appellant is that if the subsidy margin attributed to “other program” is excluded, the subsidy margin for the appellant would fall below the de minimis level as a result of which 2.47% CVD duty imposed on exports to India would have to be set aside.

22. To examine this contention, it would be pertinent to refer to rule 16 of the 1995 Rules which deals with termination of investigation and the relevant portion is reproduced below:-

Rule 16. Termination of investigation. – (1) The designated authority shall, by issue of a public notice terminate an investigation immediately if-

(a) xxxxxxxx

(b) xxxxxxxx

(c) it determines that the amount of subsidy is less than one percent ad valorem or in the case of a product originating from a developing country the amount of subsidy is less than two percent.

23. Rule 16 provides that the Designated Authority shall terminate an investigation immediately if it determines that the amount of subsidy is less than 1% ad valorem or in the case of a product originating from a developing country, the amount of subsidy is less than 2%.

24. The contention of the appellant that if the subsidy computed under “other program” is excluded from the computation of the subsidy margin, the subsidy margin would fall below 1% is well founded as is clear from a perusal of the records submitted by the learned counsel for appearing for the Designated Authority. It would, therefore, not be necessary to examine whether Malaysia is a developing country, in which case the requirement would be for the subsidy to be less than 2%.

25. It has now to be determined whether the appellant has availed any inadmissible subsidy under the “other program”. The appellant claims that under the said program it was granted exemption from payment of customs duty on import of inputs required for manufacturing goods for export, which is an admissible subsidy. According to the appellant, it had imported Copper Rods as the raw material and this was used in the production of Copper Wires which were exported. To consider this aspect it would be necessary to examine the approval letter issued by Malaysian Investment Development Authority⁹ to the appellant in connection with the grant of exemption of import duties on raw material. The translated version of the approval letter issued by MIDA with Appendix A and Appendix I is reproduced below:-

“MIDA Ref. : 320/36101/033028/000026JPC2
Messrs.
METROD (M) SDN BHD
Dear Sir,
Exemption of import duties on raw materials/ components for the manufacture of finished products by METROD (MALAYSIA) SDN BHD

Your application on the above is kindly referred.

2. Kindly be advised that the Government of Malaysia through the Malaysian Investment Development Authority (MIDA) in accordance with the provisions of the Section 14 (2) of the Custom Act 1967 has agreed to exempt import duties on raw material/components parts for finished products as in Appendix I. The exemption is subject to the conditions as in Appendix A.

3. Exemption period, import stations and manufactures / storage of raw materials / part components and market are set out in Appendix I as per enclosed. If the market is not specified, your company is free to sell the relevant finished product at local / export / FIZ / LMW market if the product is an input to the FIZ / LMW.

APPENDIX A

Name of Company: METROD (MALAYSIA) SDN BHD
MIDA Ref. : 320/36101/033028/000026JPC2
DUTY EXCLUSION REQUIREMENT ON RAW MATERIALS / COMPONENTS
FOR MANUFACTURING PUROPSE

I. The refund of duty paid from the commencement date of the exemption of up to two (2) weeks after the date of the approval letter may be made to the appropriate customs station. The Company is given a period of three (3) months from the date of the approval letter to submit a claim for the return of the duty.

II. The exemption shall be claimed by submitting the prescribed customs form and enclosing the original approval letter from MIDA. This claim shall be made when the goods are imported / released from customs control or obtained from the Licensed Warehouse under section 65 / 65 A of the Customs Act 1967. A pledge shall be made on each customs form as follows;

“I (Company Name) of the Company (Company Name) now pledge and apply for the applicable duty exemption on the above items under the exemption powers approved by the Government of Malaysia via letter of MIDA Ref. (specify) dated (specify) which is effective from (specify date) until (specify date).”

III. All invoices and “bill of lading” in respect of this import shall be in the names of the company granted an exemption.

IV. If import / purchase must through customs other than an approved station, written authorization must be obtained from the approved customs station. If the company wants to get supplies from GBP / GB, the company is required to obtain approval from the customs station that controls the company.

(a) All raw materials/ components duty exempted shall be stored by the company’s factory in accordance with the regulations specified in writing by the Royal Malaysian Customs; and

(b) Any changes of address or additional stores / factories may only be made upon the prior written permission of the Royal Malaysian Customs who control the company.

V. If exempt raw materials/components are used to manufacture finished goods on the export market, the company must record the following declaration on each customs export form (K2):

‘I (Name)…………………………………………………………………………. (Designation)  at address
Acknowledge that item Completed in this export is made of raw materials / components imported under the exemption of duty by letter * (original) Identification Card…….. Company Cop…… Date

VII. The Company is allowed to export its finished product through a third party (trader) after obtaining approval from the Royal Malaysian Customs.

VIII. Company must:

(a) provide records of the use of raw materials/components including waste/refined, manufactured finished products and marketed quantities;

(b) prepare the statement every three (3) months on (a) above as per format agreed upon in writing by the senior officer of customs/company and shall be signed and verified by the company’s accountant or authorized officer of the company. It must be submitted to the customs station within the one (1) months; and

(c) obtain written approval from the Royal Malaysian Customs for the transfer including the sale, destruction and export of the raw materials/component waste/waste. For the sale of waste/manufactured waste and raw material/components in the local market, the duty involved is to be paid first and for the quantity destroyed, the duty involved will be remitted.

IX. The relevant raw materials/components cannot be removed from the approved factory stores and premises for sub-contract work except with the written approval of the Royal Malaysian Customs.

Appendix I

MIDA Ref. : 320/36101/033028/000026JPC2

METROD (M) SDN BHD

The following raw materials are granted full import duty exemption to issue finished products for the export market at the company’s plant at

3 Lengkuk Keluli 2, Bukit Raja Prime Industrial Park,
41720 Klang, Selangor”

No.	Raw Material	Tariff  Code No.	Ratio Input/Output (:1MT)	Quantity Through	Exemption Period	Finished Goods
				Port Klang
1.	EC Grade Copper Rod	7408.11.1000	1MT	***MT	21/06/2017 till 20/06/2019	EC Grade Copper Wire

26. A perusal of the aforesaid approval letter clearly shows that the appellant was granted exemption from import duty on raw materials used for the manufacture of finished products. The duty exclusion requirements on raw materials for manufacturing the finished product have been indicated in Appendix A, while the exemption period, storage of raw material and markets are set out in Appendix I. The conditions specified in Appendix I would indicate that the appellant had been granted full import duty exemption on import of Copper Rods to be used for producing Copper Wire for the export market. It also specifies that 1 MT : 1 MT input-output ratio has to be maintained, which means that for every 1 MT of Copper Rod imported duty free, 1 MT of Copper Wire is required to be exported.

27. The appellant has explained that Copper Wire is produced from Copper Rod by the process of drawing of wire and that Copper Wire can be drawn only from Copper Rods and no other inputs go into the product and that it is also technically not possible to produce 1 MT of drawn Copper Wire from less than 1 MT of Copper Rod. According to the appellant, this condition is even more stringent than what the Indian Government has imposed in similar situations, as in terms of the Indians Standard Input Output Norms notified for manufacturing 1 MT of Copper Wire, import of 1.01 MT of Copper Rod is allowed. Thus, according, to the appellant there is no scope of excess remission under the “other program” availed of by the appellant, as it was permitted to import 1 MT of Copper Rod for the manufacture and export of 1 MT of drawn Copper Wire. The appellant claims that neither could drawn Copper Wire be manufactured from an input other than Copper Rod nor could 1 MT of drawn Copper Wire be manufactured using less than 1 MT of Copper Rod. The contention, therefore, is that in the absence of any excess remission, no part of exemption from import duty availed by the appellant could have been considered as a countervailable subsidy.

28. The contention of the respondents, however, is that the issue involves determination regarding the existence and operation of a verification mechanism by the Government of Malaysia to ensure that there is no excess remission of import duties. In this connection, it has been pointed out that the appellant did not provide complete information in response to the questions asked by the Designated Authority with regard to the verification mechanism and that the questionnaire filed by the Government of Malaysia also did not provide any answer to the several specific questions. What has been contended by the learned counsel of the respondents is that the appellant had only provided documents relating to grant of exemption but no documents were filed relating to the verification mechanism employed by the Government of Malaysia to ensure that there is no remission. Thus, no fault can be found in the findings recorded by the Designated Authority.

29. To appreciate the aforesaid contentions, it would be necessary to refer to the relevant provisions of the Tariff Act, the 1995 Rules and the SCM Agreement.

30. Section 9 of the Tariff Act deals with countervailing duty on subsidized articles and the relevant portion is reproduced below:-

“Section 9. Countervailing duty on subsidized articles. –

(1) Where any country or territory pays, bestows, directly or indirectly, any subsidy upon the manufacture or production therein or the exportation therefrom of any article including any subsidy on transportation of such article, then, upon importation of any such article into India, whether the same is imported directly from the country of manufacture, production or otherwise, and whether it is imported in the same condition as when exported from the country of manufacture or production or has been changed in condition by manufacture, production or otherwise, the Central Government may, by notification in the Official Gazette, impose a countervailing duty not exceeding the amount of such subsidy.

Explanation – For the purpose of this section, a subsidy shall be deemed to exist, if-

(a) There is financial contribution by a Government, any public body in the exporting or producing country or territory, that is where –

(i) xxxx

(ii) Government revenue that is otherwise due is foregone is or not collected (including fiscal incentives);

(iii) xxxx

(iv) xxxx

(emphasis supplied)

31. The relevant portion of section 9B of the Tariff Act is reproduced below:-

9B. No levy under section 9 or section 9A in certain cases

(1) Notwithstanding anything contained in section 9 or section 9A,–

(a) xxxxxxx

(b) the Central Government shall not levy any countervailing duty or anti-dumping duty –

(i) under section 9 or section 9A by reason of exemption of such articles from duties or taxes borne by the like article when meant for consumption in the country of origin or exportation or by reason of refund of such duties or taxes.

32. Rule 6 of the 1995 Rules deals with initiation of investigation and the relevant portion is reproduced below:-

Rule 6. Initiation of investigation. – (1) Except as provided in sub-rule (4) the designated authority shall initiate an investigation to determine the existence, degree and effect of alleged subsidy only upon receipt of a written application by or of behalf of the domestic industry.

(2) An application under sub-rule (1) shall be in the form as may be specified by the designated authority in this behalf and the application shall be supported by evidence of-

(a) subsidy and, if possible, its amount,

(b) injury where applicable, and

(c) where applicable, a causal link between such subsidized imports and alleged injury.

(3) The designated authority shall not initiate an investigation pursuant to an application made under sub-rule (1) unless-

(a) it determines, on the basis of an examination of the degree of support for, or opposition to the application expressed by domestic producers of the like article, that the application has been made by or on behalf of the domestic industry:

Provided that no investigation shall be initiated if domestic producers expressly supporting the application account for less than twenty-five percent of the total production of the like product by the domestic industry, and

(b) it examines the accuracy and adequacy of the evidence provided in the application and satisfies itself that there is sufficient evidence regarding-

i. subsidy,

ii. injury, where applicable; and

iii. where applicable, a causal link between such subsidized imports and the alleged injury, to justify the initiation of an investigation.

33. Rule 7 of the 1995 Rules deals with principles governing investigation and the relevant portion is reproduced below:-

Rule 7. Principles governing investigation–

(1) xxxxxx

(2) xxxxxxx

(3) xxxxxxx

(4) The designated authority may issue a notice calling for any information in such form as may be specified by it from the exporters, foreign producers and governments of interested countries and such information shall be furnished by such person in writing within thirty days from the date of receipt of the notice or within such extended period as the designated authority may allow on sufficient cause being shown.

Explanation – xxxxxxxxxx

(5) xxxxxxxxxxxx

(6) The designated authority may allow an interested country or an interested party or its representative to present information relevant to the investigation orally also, but such oral information shall be taken into consideration only when it is subsequently reproduce in writing.

(7) The designated authority shall make available the evidence presented by one party to other interested parties participating in the investigation.

(8) In a case where an interested party refuses access to, or otherwise does not provide necessary information within a reasonable period, or significantly impedes the investigation, designated authority may record its finding on the basis of facts available to it and make such recommendations to the Central Government as it deems fit under circumstances.

34. Rule 11 of the 1995 Rules deals with nature of subsidy and the relevant portion is reproduced below :-

Rule 11. Nature of subsidy. – (1) The designated authority while determining the subsidy shall ascertain as to whether the subsidy under investigation.

(a) Relates to export performance including those illustrated in Annexure III to these rules, or

35. Rule 11 of the 1995 Rules makes a mention of Annexure III of the rules. The said Annexure consists of Part-1 which deals with illustrative list of export subsidy and Part-2 which deals with guidelines on consumption of inputs in the production process.

36. The relevant portions of Part-1 and Part-2 of Annexure III are reproduced below : –

ANNEXURE III
PART – 1
Illustrative list of export subsidies

a. xxxxxxxx

to

f. xxxxxxxx

g. The exemption or remission, in respect of the production and distribution of exported products, of indirect taxes in excess of those levied in respect of the production and distribution of like products when sold for domestic consumption.

h. The exemption, remission or deferral of prior-stage cumulative indirect taxes on goods or services used in the production of exported products in excess of the exemption, remission or deferral of like prior-stage cumulative indirect taxes on goods or services used in the production of like products when sold for domestic consumption; provided, however, that prior-stage cumulative indirect taxes may be exempted, remitted or deferred on exported products even when not exempted, remitted or deferred on like products when sold for domestic consumption, if the prior-stage cumulative indirect taxes are levied on inputs that are consumed in the production of the exported product (making normal allowance for waste) and the item shall be interpreted in accordance with the guidelines on consumption of inputs in the production process contained in Part-2 of this Annexure. This paragraph does not apply to value-added tax system and border-tax adjustment in lieu thereof; the problem of the excessive remission of value-added taxes is exclusively covered by paragraph (g).

i. The remission or drawback of import charges in excess of those levied on imported inputs that are consumed in the production of the exported product (making normal allowance for waste); provided, however, that in particular cases a firm may use a quantity of home market inputs equal to, and having the same quality and characteristics as, the imported inputs as a substitute for them in order to benefit from this provision if the import and the corresponding export operations both occur within a reasonable time period, not to exceed two years and the item shall be interpreted in accordance with the guidelines on consumption of inputs in the production process contained in Part-2 of this Annexure and the guidelines in the determination of substitution drawback system as export subsidies contained in Part-3 of this Annexure.

PART- 2
Guidelines on consumption of inputs in the production
process
I
xxxxxx
II

1. Inputs consumed in the production process are inputs physically incorporated, energy, fuels and oil used in the production process and catalysts which are consumed in the course of their use to obtain the exported product. In examining whether inputs are consumed in the production of the exported product, as part of countervailing duty investigation pursuant to these rules, the designated authority should proceed on the following basis namely :-

(1) Where it is alleged that an indirect tax rebate scheme, or a drawback scheme, conveys a subsidy by reason of over-rebate or excess drawback of indirect taxes import charges on inputs consumed in the production of the exported product, the designated authority should first determine whether the government of the exporting country has in place and applies a system or procedure to confirm which inputs are consumed in the production of the exported product and in what amounts. Where such system or procedure is determined to be applied, the designated authority should then examine the system or procedure to see whether it is reasonable, effective for the purpose intended, and based on generally accepted commercial practice in the country of export. The designated authority may, if he considers necessary carry out certain practiced tests in order to verify information or to satisfy themselves that the system or procedure is begin effectively applied.

(2) Where there is no such system or procedure, where it is not reasonable, or where it is instituted and considered reasonable but is found not to be applied or not to be applied effectively, a further examination by the exporting country based on the actual inputs involved would need to be carried out in the context of determining whether an excess payment occurred. If the designated authority considers it necessary, a further examination would be carried out in accordance with sub-paragraph (1) above.

2. The designated authority should treat inputs as physically incorporated, if such inputs are used in the production process and are physically present in the product exported. An input need not be present in the final product in the same form in which it entered the production process.

37. It would also be pertinent to refer to the relevant portion of the SCM Agreement.

38. Article 1 deals with definition of a subsidy and is reproduced below :-

Article 1

Definition of a Subsidy

1.1 For the purpose of this Agreement, a subsidy shall be deemed to exist if:

(a)(1) there is a financial contribution by a government or any public body within the territory of a Member (referred to in this Agreement as “government”), i.e. where:

(i) xxxxxxx

(ii) government revenue that is otherwise due is foregone or not collected (e.g. fiscal incentives such as tax credits);

(iii) xxxxxxx

(iv) xxxxxxx or

(a)(2) xxxxxxx and

(b) a benefit is thereby conferred.

39. It would be seen that the same principle is contained in section 9 of the Tariff Act.

40. Footnote to Article 1, which deals with the exemption or remission of duties or taxes on exported products, is reproduced below:-

“In accordance with the provisions of Article XVI of GATT 1994 (Note to Article XVI) and the provisions of Annexes I through III of this Agreement, the exemption of an exported product from duties or taxes borne by the like product when destined for domestic consumption, or the remission of such duties or taxes in amounts not in excess of those which have accrued, shall not be deemed to be a subsidy.”

41. Annexure I of the SCM Agreement contains “Illustrative List of Export Subsidies” as does Annexure III – Part-1 of the 1995 Rules. Annexure II of the SCM Agreement deals with “Guidelines on Consumption of Input in the Production Process”. This is contained in Part-2 of the Annexure III of the 1995 Rules.

42. It is clear from the aforesaid Footnote that only excess remission or exemption of duties can be considered as subsidy. This principle also finds place in section 9B of the Tariff Act.

43. Thus, only remission or drawback of import charges in excess of those that are levied on imported inputs consumed in the production of the export goods, after making allowance for wastage, alone can be considered as a countervailable subsidy. This position clearly emerges from Annexure III, Part 1 to the 1995 Rules, which in clauses (g), (h) and (i) lays down this principle. The aforesaid clauses (g), (h) and (i) of Annexure III, Part 1 to the 1995 Rules also form part of Annexure I to the SCM Agreement.

44. At this stage, it would be useful to reproduce that part of the order of the Designated Authority contained in the final findings that relates to “ other program” dealing with exemption on import duties on raw materials used in the production of exported goods and they are as follows:-

“(xxxiii) Other Program used by Metrod Group: Exemption on import duties on raw material which are used in production of exported goods.

Authority notes that Metrod Malaysia has received benefit in the form of exemption on import of raw material for export production because Metrod Malaysia specifically admitted in its questionnaire response in Exhibit 14 that Grant of exemption of import duty on the raw material meant for export goods is covered under the exemption [of import duty on raw material]. No duty exemption under the scheme is available for goods which are imported for production of finished products destined for the domestic market. Authority has inadvertently noted in the disclosure statement that this benefit availed by Metrod is a benefit under program no. 24.

311. The Authority notes that program provides for financial contribution in the form of revenue forgone which is otherwise due through exemption from import duty on raw material and benefit is thereby conferred. The program is also specific because it is contingent on export performance. The Authority notes that import raw material for use in the production of exported goods cannot be considered as countervailable subsidy only if there is sufficient evidence to demonstrate that there is a verification mechanism to ensure that there is no excess remission. Metrod group has merely claimed existence of a mechanism and absence of excess remission without providing sufficient evidence or step by step explanation of such verification mechanism. Metrod group has not provided any instance of duty imposition by the Government on the company where it was unable to meet the export obligation.”

Claims concerning Malaysia subsidy programs

• Metrod Group has wrongly stated that program no. 24 was countervailed by the Authority by stating that it involves exemption of import duties on the imported raw material used in the production of export goods. Authority has clearly noted in paragraph 253 of disclosure statement that the program No. 24 provides financial contribution in the form of revenue foregone and is also specific because it is limited to enterprise that use raw material that are not locally available.
• Authority has noted that Metrod Malaysia has received benefit in the form of exemption on import of raw material used in the production of export goods because Metrod Malaysia specifically admitted in its questionnaire response in Exhibit 14 that “Grant of exemption of import duty on the raw material meant for export goods is covered under the exemption [of import duty on raw material]. No duty exemption under the scheme is available for goods which are imported for production of finished products destined for the domestic market.” Authority had inadvertently noted in the disclosure statement this benefit availed by Metrod is benefit under program no. 24. This does not change the admitted position that Metrod has availed this benefit and the same is countervailable. The Authority has now categorized this benefit availed by Metrod under “other program”.
• As regards the submission that export contingent exemption of import duty on raw material by the Government of Malaysia cannot be considered as countervailable subsidy because it is compliant with specific provision of Annex I of the SCM Agreement, the Authority notes that import of raw material for use in the production of exported goods cannot be considered as countervailable subsidy only if there is sufficient evidence to demonstrate that there is verification mechanism to ensure that there is no excess remission have merely claimed existence of a mechanism and absence of excess remission without providing sufficient evidence or step by step explanation of such verification mechanism. Interested parties have not provided any instance of duty imposition by the Government on the company where it was unable to meet the export obligation. There is also no explanation by the exporter and especially by the Government of Malaysia to demonstrate how the amount of import quantity eligible for import duty exemption was fixed generally by the Government and especially in the case of raw material used for the production of product under consideration.

(emphasis supplied)

45. A perusal of the aforesaid final findings of the Designated Authority would indicate that:

(i) The appellant has received benefits in the form of exemption on import of raw material for export production but the Designated Authority had inadvertently noted in the disclosure statement that this benefit was availed by the appellant under program 24. The Designated Authority, therefore, in the final findings categorized this benefit under “other program”;

(ii) The import of raw material for use in the production of exported goods can be considered as countervailable subsidy only if there is lack of sufficient evidence to the demonstrate that there is a verification mechanism to ensure that there is no excess remission but the appellant merely claimed existence of a mechanism without providing sufficient evidence or step by step explanation of such verification mechanism.

46. Each of the aforesaid two findings recorded by the Designated Authority shall be considered separately.

PROGRAM 24/ OTHER PROGRAM

47. It needs to be noted that the “other program” was not specified in the application filed by the Domestic Industry or in the initiation notification or the verification report or the disclosure statement issued by the Designated Authority. In fact, it is only in the final findings that the Designated Authority realised the mistake and stated that it had inadvertently noted in the disclosure statement that the benefit had been availed by the appellant under program 24, whereas subsidy was granted to the appellant under “other program”. The Domestic Industry had identified program 24 in their application under which exemption was granted on import of raw material which was not locally available and used in all kinds of manufacturing activity. Under the authorisation letter, the appellant had been granted duty exemption on import of Copper Rods to be used for producing Copper Wire for export market, which program is different from program 24. The exemption under “other program” is only on raw material imported for manufacturing export product. The records do indicate that the appellant had disclosed the subsidy scheme in Exhibit 14 to the Questionnaire as it clearly stated that it had not received any inadmissible subsidy under this program since it had been granted exemption of duty on import of raw materials used exclusively for manufacturing goods meant for export, which was a permissible duty remission under the 1995 Rules and the SCM Agreement. It needs to be noted that under the “other program”, exemption from duty on import of raw material was provided only if raw material was exclusively used in the manufacture of products which are exported, whereas under program 24 the imported raw material can be used in all kinds of manufacturing activity. This fact assumes importance because the appellant was not confronted with the subsidy availed by the appellant under this program. All that has been stated in the final findings is that this happened because of an inadvertent error.

48. The contention advanced by learned counsel appearing for the respondents is that reference to a wrong program in the disclosure statement would be of no consequence as no prejudice has been caused to the appellant. This submission cannot be accepted for the reason that the Designated Authority in the disclosure statement, as is contemplated in rule 18 of 1995 Rules, has to inform all the interested parties of the essential facts under consideration which would form the basis of its decision and permits the interested parties to defend their interest. Prejudice was caused because the appellant was not concerned with Program 24. The “other program” was different and subsidy was granted under it on fulfilment of the conditions stipulated therein.

Step by Step Verification Mechanism for No Excess

Remission

49. It would be pertinent to refer to the approval letter issued by MIDA in connection with the exemption granted to the appellant on import of raw material for the manufacture of finished products. A perusal of the approval letter clearly shows that import duty on raw material was exempted subject to the conditions indicated in Appendix A. Appendix A provides that the exemption shall be claimed by submitting the prescribed customs forms when the goods are imported with a pledge that duty exemption is being claimed under the exemption powers approved by the Government of Malaysia. It also provides that all the raw materials exempted from duty shall be stored in accordance with the Regulations of the Royal Malaysian Customs. A declaration has also to be recorded on each customs export that the item is made of raw material imported under duty exemption and details of the letter under which it is granted have to be provided. Appendix I requires that 1 MT : 1 MT input-output ratio has to be maintained, meaning thereby that for every 1 MT of Copper Wire imported duty free, 1 MT of Copper Wire is required to be exported. Copper Wire can be drawn only from Copper Rods and no other input goes into this product. Thus, there can possibly be no scope for any excess remission under the “other program” availed by the appellant without attracting the attention of the Government or the Custom Authorities.

50. It also transpires that the appellant had disclosed the subsidy received by it in Exhibit 14 to the Questionnaire Response. In Exhibit 14A, the appellant had also submitted details of all the imports made by the appellant under the said duty exemption Authorization and had also submitted the import Form K1 filed with the Malaysian Customs under which it was declared that the import was being made under the duty free import authorization. The appellant is also required to file regular returns as provided in Annexures K, J, K2 regarding imports made and exports made under the Approval Letter. The appellant is also subjected to regular audit by the Malaysian Custom Authorities. The appellant also claims that during the onsite verification it had submitted a summary of all imports and exports made under the Authorization as also the corresponding papers with the Malaysian Customs to substantiate its claim that the imported duty free raw material was used for manufacturing the goods that were exported.

51. The records also indicate that the Designated Authority had earlier, by email dated September 3, 2019, informed the appellant that the appellant should furnish information regarding each program in a format marked as Exhibit 1 for the purpose of the verification visit to be undertaken by the Designated Authority since it transpired from the Questionnaire Response that the appellant had received certain benefits under various schemes. The relevant extract of the said email is as follows:-

“In this regard, please make available the following documents for verification:

1. List of subsidies received by the Metrod Companies as per the enclosed format in Exhibit

1.

………..

5. For majority of the subsidy schemes alleged in the initiation notice, it has been stated that no benefit has been availed. Provide evidence, if possible, to demonstrate that the subsidy schemes mentioned in Initiation notification have not been availed by Metrod Companies and Metrod Holding Berhad.

6. Reconciliation of sales to India from annual report or any other documentary evidence.

7. Reconciliation statement matching the subsidies reported by your company in the questionnaire response with the figures reported in the Annual Report.

9. Legal/Policy documents evidencing the existence of Exemption/Reduction of Import Duties on raw materials in Malaysia.

………..

15. Provide list of main raw materials as per Exhibit 4.

The letter indicates the primary set of documents required for on-spot verification. The DGTR may request for further information, if required.”

52. The appellant submitted details of the raw material imported under the authorisation and also stated that the all the goods manufactured from the said raw material were exported. The appellant also stated that during the visit of the Designated Authority for verification, the appellant had also submitted documentary proof to reconcile the imports and exports made under the duty free authorization. The relevant potion of the email is reproduced below:-

“The entire raw material was used for production of finished goods meant for export market as per condition given in approval letter. Copy of return filed with authority to complete the requirement is attached.”

53. It is, therefore, clear that the Designated Authority was aware of claim made by the appellant that the subsidy on the import of raw material would not be countervailable, since the appellant had used the imported duty free Copper Rods for producing Copper Wire solely for export market but the Designated Authority did not raise any doubts on this aspect, either in the verification report or in the disclosure statement. The Designated Authority did not at any point express any view that the appellant had exported lesser quantity of Copper Wire than the quantity of Copper Rods imported by it duty free.

54. In fact, in the verification report as also the disclosure statement, the Designated Authority took this subsidy program as “program 24” for which CVD has been recommended in the final findings as it provides exemption from import duty on raw material used for all kinds of manufacturing activity and not solely for the manufacture of export products. It also transpires from the records that the appellant made submissions in the comments to the disclosure statement regarding its claims that the duty free raw material imported was exclusively used for the production of goods that were exported but the Designated Authority, without seeking any further clarification from the appellant on the comments, determined the said program to be countervailable on the ground that the appellant failed to give sufficient evidence or step by step explanation of the verification mechanism followed by the Government of Malaysia for determining whether there was “excess remission” or not.

55. In this connection it would be useful to revert to the letter sent to the appellant by the MIDA regarding exemption of import duties on raw materials for the manufacture of finished products. Appendix A provides for a detailed procedure for claiming exemption. Apart from providing a pledge on each customs form, the appellant was also required to strictly follow the procedures prescribed from clause iii to vi contained in the said Appendix. These clauses have been reproduced in the earlier paragraph. It clearly, among others, requires that all invoices and bills of lading in respect of the import should be in the name of the company that has been granted exemption and the raw material duty exempted should be stored in accordance with the Regulations specified in writing by the Royal Malaysian Customs. The appellant has also to record a declaration on each customs export that the exempted raw material was used to manufacture the finished goods in the export market. Clause(viii) specifically requires the appellant to:

(a) provide records of the use of raw material including waste, manufactured finished products and marketed quantities;

(b) prepare a statement every three months on (a) above as per the format agreed upon in writing by the senior officer of customs and shall be signed and verified by the authorized officer of the company. It must be submitted to the customs station within one month; and

(c) obtain written approval from the Royal Malaysian Customs for the transfer including the sale, destruction and export of the raw material/waste. For the sale of waste/manufactured waste and raw material/components in the local market, the duty involved is to be paid first and for the quantity destroyed, the duty involved will be remitted.

56. In such circumstances, it is not possible to accept the contentions advanced by the respondent that the appellant did not provide adequate evidence before the Designated Authority to substantiate that inputs were used exclusively for manufacturing goods and that adequate verification mechanism did not exist. The approval letter issued by MIDA did not merely mention that the imported goods, on which duty was exempted, were to be used exclusively for manufacturing products for exports but also provided a detail procedure to be adhered to in Appendix A and Appendix I to the letter.

57. The inevitable conclusion that follows from the aforesaid discussion is that there was a step by step verification in place for ensuring that no excess remissions take place.

58. It also needs to be noted that if during the course of investigation the Designated Authority found that some information had not been given by the appellant or it was not providing details, the Designated Authority could have informed the appellant for removal of such doubts.

59. It would also be pertinent to refer to Annexure III of the 1995 Rules. Part-2 of Annexure III deals with guidelines on consumption of input in the production process. The same have been reproduced above. Paragraph II of Part-2 provides that in examining whether inputs are consumed in the production of the exported product as a part of countervailing duty investigation, the Designated Authority should, in a case where there is an allegation of excess remission, first determine whether the government in the exporting country has in place and applies a system or procedure to confirm which inputs are consumed in the production of the exported product and in what amount. The appellant had demonstrated that there was no excess remission and even otherwise, there was no allegation of any excess remission so as to warrant an examination of the process contemplated in the aforesaid paragraph.

60. In any case, to examine whether the government in the exporting country has in place and applies a system or procedure to confirm which inputs are consumed and in what amount, it is seen that Copper Rods alone can be used in manufacture of drawn Copper Wire. In regard to the amount of inputs to be consumed, the Government of Malaysia has fixed a ratio of 1:1 that means that for every 1 MT of Copper Rod imported duty free, 1 MT of Copper Wire should be manufacture for export. Thus, both the requirements stand satisfied.

61. Even otherwise, if the Designated Authority formed an opinion that there was no adequate system or procedure in place, then too it was obligatory on the part of the Designated Authority to make a request the Government of Malaysia to conduct a further examination as stipulated in Part-2 of Annexure III. However, there is nothing on the record to indicate that the Designated Authority required the Government of Malaysia to conduct a further examination. Even if the Government of Malaysia refused to conduct such a further examination, the Designated Authority was required to records it findings based on the facts available with it.

62. In this connection it would be pertinent to refer to a decision of the World Trade Organisation, Appellate Body between the European Union and Pakistan in the matter of countervailing measures on imports of Polyethylene Terephthalate¹⁰ from Pakistan. The European Commission investigated several schemes that allegedly involved grant of subsidies by the Government of Pakistan and ultimately issued a regulation imposing definitive countervailing duties on imports of PET originating in Iran, Pakistan and the United Arab Emirates. Before the Panel, Pakistan claimed that the countervailing measures imposed by the European Union were inconsistent with several provisions of the SCM Agreement. The finding of the Panel, against which the European Union filed an appeal before the World Trade Organisation Appellate Body, is as follows:

“5.62 The European Union appeals the Panel’s interpretation of Article 1.1(a)(1)(ii), footnote 1, and Annexes I to III to the SCM Agreement, in connection with the Commission’s finding that the MBS is a countervailable subsidy contingent upon export performance. In particular, the European Union challenges the Panel’s finding that, in the context of duty drawback schemes, a subsidy exists only when an “excess” remission occurs representing government revenue foregone that is otherwise due within the meaning of Article 1.1(a)(1)(ii) and footnote 1 of the SCM Agreement.

5.63 The Panel considered that, in the context of duty drawback schemes, the financial contribution, in the form of government revenue foregone, is limited to the excess amount of the remission. The Panel referred to this as the “excess remissions principle”. The Panel concluded that the excess remissions principle “provides the legal standard under which to determine whether remissions of import duties obtained under a duty drawback scheme constitute a financial contribution in the form of revenue forgone otherwise due under Article 1.1(a)(1)(ii) of the SCM Agreement”.”

63. The Appellate Body examined whether the Panel erred in its interpretation of Article 1.1(a)(1)(ii), Footnote 1 and Annexures II and III to the SCM Agreement and the observations are as follows:-

“5.120. At the heart of the European Union’s claim of error on appeal is its contention that Annex II(II)(2) does not prescribe what happens in the event that an exporting Member does not carry out the “further examination” prescribed in the first sentence of this provision, or where such “further examination” is unsatisfactory. The European Union refers to this absence of prescription as a “silence”, the consequence of which is that the remission of import duties no longer qualifies as a duty drawback scheme and the entire amount of duties refunded or not collected upon exportation can be countervailed by the investigating authority. Pakistan disagrees with the significance that the European Union attributes to this perceived “silence”. Moreover, in response to questioning at the hearing, Pakistan opined that the investigating authority has a duty to give the exporting Member the opportunity to conduct a “further examination”, as provided for in the first sentence of Annex II(II)(2), before proceeding to engage with the perceived “silence” that follows this provision. Before addressing this alleged “silence” highlighted by the European Union, we first examine what Annex II(II)(2) provides for and its relationship to the first step of the inquiry articulated in Annex II(II)(1), discussed in paragraph 5.116 above.

5.121. Pursuant to the first sentence of Annex II(II)(2), the need for a “further examination by the exporting Member” prescribed therein does not arise in each countervailing duty investigation. Such need only arises in a situation where the investigating authority has determined, from its inquiry under Annex II(II)(1), that there is no verification system in place in the exporting Member, or a verification system is in place but it is not fit for purpose, or it has not been applied effectively by the exporting Member.

5.122. Should an investigating authority determine that a “further examination” by the exporting Member needs to be carried out pursuant to the first sentence of Annex II(II)(2), it follows that the investigating authority has the responsibility of informing the exporting Member of this need. In our view, the investigating authority should inform the exporting Member of the need for a “further examination” in sufficient detail and in a timely manner. When an investigating authority provides this information to the exporting Member in a timely manner, it permits the exporting Member to carry out a “further examination”, in accordance with the first sentence of Annex II(II)(2), before the conclusion of the authority’s investigation. In so doing, this allows the exporting Member, and indeed the investigated company, the opportunity to defend effectively their interests in the remaining stages of the countervailing duty investigation. This is of particular importance bearing in mind that the further examination by the exporting Member is aimed at establishing whether “an excess payment occurred” – a crucial element in the investigating authority’s determination of whether the duty drawback scheme under investigation “conveys a subsidy by reason of … excess drawback of … import charges on inputs”.

5.2.4 Conclusion

5.138. A harmonious reading of Article 1.1(a)(1)(ii), footnote 1, and Annexes I(i), II, and III to the SCM Agreement and the Ad Note to Article XVI of the GATT 1994 confirms that duty drawback schemes can constitute an export subsidy that can be countervailed only if they result in a remission or drawback of import charges “in excess” of those actually levied on the imported inputs consumed in the production of the exported product. Thus, in the context of duty drawback schemes, the financial contribution element of the subsidy (i.e. the government revenue foregone that is otherwise due) is limited to the excess remission or drawback of import charges on inputs and does not encompass the entire amount of the remission or drawback of import charges.

5.139. Furthermore, the perceived “silence” in Annexes II and III to the SCM Agreement, referred to by the European Union, is not one that pertains to the definition of the subsidy, and in particular to what constitutes the financial contribution element of the subsidy, in the form of government revenue foregone. Instead, the perceived “silence” relates to a procedural step in the context of an investigating authority’s inquiry into whether the excess remission or drawback of import charges occurred. As regards this procedural step, where an investigating authority determines that there is no verification system in place in the exporting Member, or a verification system is in place but it is not fit for purpose, or it has not been applied effectively by the exporting Member, and where a further examination by the exporting Member has not been undertaken or is considered unsatisfactory by the investigating authority, it is true that Annexes II and III do not explicitly provide for what should happen next. Nonetheless, the SCM Agreement, as a whole, is not silent, and the perceived “silence” in Annexes II and III does not grant an investigating authority the liberty to depart from these other disciplines of the SCM Agreement. In particular, Article 12.7 of the SCM Agreement allows an investigating authority to rely on the “facts available” on its investigation record to complete its inquiry into whether a duty drawback scheme conveys a subsidy by reason of excess drawback of import charges on inputs.

5.140. Accordingly, we find that the European Union has not demonstrated that the Panel erred in its interpretation of Article 1.1(a)(1)(ii), footnote 1, and Annexes I(i), II, and III to the SCM Agreement and the Ad Note to Article XVI of the GATT 1994, as summarized at paragraph 7.56 of its Report.”

(emphasis supplied)

64. Shri Seetharaman, learned counsel appearing for Hindalco very fairly stated that this decision would only have a persuasive value but at the same time also stated that it will not have a binding effect on this Tribunal. The reasoning contained in the decision is in accordance with the 1995 Rules and the SCM Agreement and so there is no reason why the reasoning should not be followed.

65. Learned counsel appearing for the respondents have, however, placed reliance on certain decision rendered by the Designated Authority wherein a specific finding has been recorded that the concerned Government failed to provide evidence to demonstrate the mechanism followed by them while determining the nature and quantum of input which gets consumed in the production of exported goods. It transpires that in all such cases, repeated requests were made to the government. In the instant case, it is seen that the Designated Authority, at no point of time prior to final findings, suggested or alleged that the Government of Malaysia failed to provide the requisite information. The records indicate that the Government of Malaysia had filed the Questionnaire Response and if there was any doubt, the Designated Authority could have required the Government of Malaysia to provide the information.

66. Thus, for all the reasons stated above, it is not possible to sustain the CVD levied for “other program” and if this program is excluded from the subsidy margin determination, the appellant would fall below the de minimis level. The imposition of 2.47% CVD on the appellant at serial no. 8 of the notification dated January 8, 2020 is, therefore, liable to be set aside.

67. Such being the position, it would not be necessary to examine the submission raised on behalf of the appellant that the drawn “Copper Wire” manufactured by the appellant is not akin to “Continuous Cast Copper Wire Rods”.

68. In the result, the imposition of 2.47% CVD on the appellant at serial no. 8 of the notification dated January 8, 2020 is set aside and all the four Anti-Dumping Appeals, bearing numbers 50897 of 2020, 50894 of 2020, 50895 of 2020 and 50896 of 2020 are allowed.

(Pronounced in the open Court on March 08, 2021)

Notes:-

1 CVD

2 the appellant

3 Hindalco

4 Vedanta

5 the Tariff Act

6 the 1995 Rules

7 PCN

8. SCM Agreement

9 MIDA

10 PET